How the Free World Took Four Giant Leaps to Self-Destruction
A (successful) American politician who cries: “God is a white supremacist!”Neo-nazis in the Bundestag. The extreme right rising in Italy. Poland’s authoritarians purging its Supreme Court .
How did we get here? To a world where the forces of intolerance and indecency are on the rise, and those of decency, wisdom, and civilization are waning? Is something like a new Dark Age falling?
I think it has everything to do with predatory capitalism, and so I want to tell you a story. Of how it came to be born, in four steps, which span three decades.
During the 2000s, the economy of the rich world underwent something like a phase transition. It became “financialized”, as the jargon goes — which simply means that finance came to make up a greater and greater share of the economy. Hedge funds and investment banks and shady financial vehicles of all kinds went from a modest portion of the economy, to making up a huge chunk of it — around half, in some countries.
Now, what was “financialization” for? What were all these bankers, hedge fund managers, investors, and so on, doing? The answer is: nothing. Nothing of value, anyways. They were simply placing bets…with each other. Bets on bets on bets, meta-bets. Economists, who have something like an inferiority complex, envious of swashbuckling bankers, bought their marketing pitch hog, line, and sinker: “we’re going to reduce risk! Everyone will benefit!” But no such thing was happening — and anyone could see it. Risk was being massively amplified, in fact, because every time a speculator made a billion dollar bet with another, they were both betting with the same pool of money, essentially. Whose money? It wasn’t theirs — it was everyone’s. Pensions, savings, bank accounts, earnings, retirement funds. All that being bet on bets on bets on bets…which amounted to nothing. But what if all the bets went south at once?
First, I want you to really understand that what was happening was a zero-sum game, where one had to lose for another to win. Imagine there are three of us, in a little stone age tribe, with a hundred pebbles each. We spend all day every day finding new ways to lend pebbles to each other, to bet them on who’ll blink first, or even bets on those bets, and so on. In our little economy, does anyone ever end up better off? Does anyone, for example, discover antibiotics, or even invent the wheel? Nope. We’re just fools, who’ll never accomplish, learn, or create anything, sitting around playing a zero-sum game, in which no real value is ever created. The pebbles never become anything more valuable, like, for example, books, symphonies, knowledge, or medicine. All that is exactly what was happening during the phase of financialization.
But financialization didn’t just have a direct cost — no value being created, just men in shiny suits betting pebbles on who’d blink first. It also had an opportunity cost. As finance grew to be a larger and larger share of the economy, so the wind got sucked out of the sails of the “real economy”, as American economists put it, which simply means people doing the work that actually does create value — teachers, nurses, engineers, artisans, bakers, small-town factories, and so on. Think about it simply: the more money that was burned up in speculating, the less that was available for making things of genuine value. So the incomes of all these people — those in the “real economy” — began to stagnate. New schools and hospitals and energy grids and so on weren’t built — all the money was going towards speculating on the backs the old ones, sometimes, often, on their failures. A black hole was growing at the heart of the economy — but according to pundits, it was the sun itself. Everything was upside down. The bets were indeed about to all go south at once — only no one knew understood how or why yet.
How was the real economy to survive, then? Another hidden effect of financialization was super-concentration — the second force in the rise of predatory capitalism. Mom-and-pop capitalism is a healthy and beautiful thing, an economy of a million little shops, bakeries, artisans — but it takes only a modest attachment to a profit motive. But thanks to the rise of massive, global speculation, only aggressive quarterly profit-maximization was allowed. CEO earnings were hitched to share prices, and your share price only went up if your earnings did, relentlessly, illogicaly, crazily, every single quarter, instead of stabilizing at a happy, gentle amount — and so the only way left, in the end, to achieve it, was to build titanic monopolies, which could squeeze people for every dime. Once the economy had Macy’s, JC Penney, K-Mart, Toys-R-Us and Sears. Now it has Walmart. The story was repeated across every single industry. Amazon, Google, Apple. A new age of monopoly arose.
But monopolies had an effect, too. The third force in the rise of predatory capitalism was the implosion of the institution formerly known as the job. Now, just before peak financialization, beginning in the 1990s, many jobs were “offshored.” That’s a polite way to say that the speculators above discovered that companies were more profitable when they evaded as much of human civilization as possible. Find a country with no labour laws, no protections, no standards, no rule of law at all, in fact — and send jobs there. That way, you wouldn’t have to pay for pensions, healthcare, childcare, insurance, and so on. Cost savings! Efficiency! Synergies, even — you could make everything in that one sweatshop.
We’re used to thinking that offshoring “took” jobs in rich countries. But the truth is subtler — and more ruinous. They blew apart the idea of a job as we used to know it. As jobs went to countries without good governance, decent labour laws, a boomerang effect happened. The machine discovered that it could do in rich countries what it had done in poor ones — and so it began stripping away everything that made a job “a job.” Because the economy was increasingly composed of monopolies, giant companies, banks, and investors had the power to do so with impunity. Speculators began raiding pension funds. Managers began stripping away benefits of every kind, from childcare, to vacations, to healthcare. Until, at last, in a final triumph, the “at-will job” and the “zero-hours contract” were created — social contracts that were only “jobs” in name, but offered less than no stability, security, mobility, or opportunity. People who didn’t have benefits could now be fired on a whim — and so now they bore all the risk. But the risk of what, precisely?
Remember those speculators? Taking huge risks, betting billions with each other, on exactly nothing of real value? Risk had come full circle. Now it was the average person in the real economy who bore all the risks of these bets going bad. If the bets with south, who’d take the hit? All those people with zero benefits, no protection, no safety, all those people for whom “a job” now meant something more like “a temporary soul-crushing way to avoid destitution.” They’re the ones who’d be fired, instantly, lose what little savings they had, have their already dwindling incomes slashed, be ruined.
And then the bets went bad. As bets tend to do, when you make too many of them, on foolish things. What had the speculators been betting with each other on? As it turns out, largely on property prices. But people without the stable jobs that had kept such a huge property bubble going didn’t have growing incomes anymore. Property prices couldn’t keep rising. Bang! The financial system fell like a row of dominoes. It turned out that everyone had bet property prices would go on rising — and on the other side of that bet was…everyone else. All of them had been betting on the same thing — “we all bet prices will keep rising forever!” The losses were so vast, and so widespread, that the whole global financial system buckled. The banks didn’t have the money to pay each other for these foolish bets — how could they have? Each one had bet the whole house on the same thing, and they all would have gone bankrupt to each other. LOL — do you see the fatal stupidity of it all yet?
So in had to step governments. They bailed out the banks — but didn’t “restructure” them, which is to say, fire their managers, wash out their shareholders, and sell off the bad loans and bets. They just threw money at them — and took those bad bets onto the nation’s books, instead. It was the most foolish decision since the Great Depression. Why?
Well, now governments had trillions in — pow! — sudden debt. What were they to do? How would they pay it off? Now, you might think that Presidents are very intelligent people, but unfortunately, they are just politicians. And so instead of doing what they should have done — printing money, simply cancelling each others’ debts to each other, which were for fictional speculation anyways — they decided that they were “broke”. Bankrupt, even — even though a country can’t go bankrupt, anymore than you could if you could print your own currency at home, and spend it everywhere.
What does a bankrupt have to do? Liquidate. So governments began to slash investment in social systems of all kinds. Healthcare systems, pension systems, insurance systems, media and energy systems. This was the fourth step in the birth of predatory capitalism: austerity.
But people’s incomes were already dwindling, thanks to the first three steps — as jobs not just disappeared in quantity, but also imploded in quality, as monopolies grew in power, and as pointless, destructive, zero-sum speculation sucked the life out of the real economy. The only thing keeping the real economy going at this point was investment by the government — after all, the speculators were speculating, not investing for the long run. It was governments that were effectively keeping economies afloat, by providing a floor for income, by anchoring economies with a vast pool of stable, safe, real, secure jobs, and investinging dollars back in societies short of them. And yet, at the precise moment that governments needed to create more of precisely that, they did just the opposite.
Snap! Economies broke like twigs. The people formerly known as the middle class had been caught in between the pincers of these four forces — financialization, monopoly, the implosion of the job, and austerity. Together, they shattered what was left of rich economies — to the point that today, incomes are stagnant across the rich world, even in much vaunted Scandinavia, while living standards are falling in many rich countries, like the US and UK.
What do people do as hardship begins to bite — especially those who expected comfortable, easy lives? They become reactionary, lashing out violently. They seek safety in the arms of demagogues. That doesn’t mean, as American pundits naively think, that “poor people become authoritarians!” Quite the opposite.
It’s the once prosperous but now imploded middle which turns on the classes, ethnicities, groups, below it. The people who expected and felt entitled to lives of safety and security and stability — who anticipated being at the top of a tidy little hierarchy, the boss of this or that, the chieftain of that or this, but now find themselves adrift and unmoored in a collapsing society, powerless. That gap between expectation and reality is what ruinous. They retain a desperate need to be atop a hierarchy, to be above someone, the entitled imploded middles — and what has happened in history, time and again, is that they turn to those who promise them just that superiority, by turning on those below them. Even if, especially if, it is in the extreme, irrational, yet perfectly logical form of supremacy and dominion over the weak, the despised, and the impure.
And that is what all today’s reactionary, extremist movements — which I call the Faction — really are. Predatory capitalism imploding into strange, new forms of old diseases of the body politic —ultrauthoritarianism, theosupremacism, kleptofascism, neofeudalism, biodominionism, hatriarchy, technotalitarianism, novel and lethal forms of ruin for a new dark age.
And so here we are, you and I. On the cusp of that age. A time where the shadows in human hearts shine as black and blinding as midnight. And once again, it is the folly and hubris of wise men that led us here.
Umair
July 2018
